Sales at established stores fell 2 percent in the latest quarter. Analysts on average had expected a decline of 2.60 percent.

Apparel retailer Gap Inc reported a smaller-than-expected drop in quarterly sales, largely due to higher customer visits to its Old Navy stores in June.

However, the retailer's shares fell 4.9 percent in extended trading on Monday as its Banana Republic brand posted another disappointing quarter.

Comparable sales at Old Navy, a bright spot in recent years, was flat after two-quarters of declines. Analysts on average had expected a decline 1.20 percent.

Gap also estimated adjusted profit of 58-59 cents per share for the second quarter ended July 30. Analysts on average were expecting a profit of 48 cents, according to Thomson Reuters I/B/E/S.

The company, which saw higher traffic to its stores in June, is scheduled to report second-quarter earnings after the bell on Aug. 18.

Sales at established stores fell 2 percent in the latest quarter. Analysts on average had expected a decline of 2.60 percent, according to research firm Consensus Metrix.

The company has said it would focus on North America and would shut 75 Old Navy and Banana Republic stores outside the region.

"Performance was uneven within the quarter, with challenging traffic in May and July," Jack Calandra, senior vice president of investor relations said in a pre-recorded call.

U.S. apparel retailers are struggling to draw shoppers who are increasingly seeking steep discounts and are choosing cheaper and trendier clothes offered by fast-fashion retailers such as H&M , Forever 21 and Inditex's Zara.

Mall traffic has also steadily decreased as millennials have taken to the internet to shop for apparel and accessories.